The International Monetary Fund (IMF) has advised Tanzania's central bank to be prepared to further tighten monetary policy as needed to curb inflation. In its latest report to Tanzania, the IMF said that while inflation remains below the central bank’s target, the recent sharp increases in food and energy inflation could lead to second-round effects. Tanzania’s annual inflation rate ebbed for the second month to 4.7 per cent in March 2023, from 4.8 per cent in the previous month, according to the National Bureau of Statistics. The IMF said in the report that inflation was relatively low because the government responded to the recent increase in inflationary pressures with temporary fuel and fertiliser price subsidies while tightening liquidity in the financial system. IMF said the central bank’s liquidity mop-up operations, using Repo and the sale of liquidity papers, helped to reduce excess reserves from about 19 per cent of reserve money last August to 10.5 per cent by the end of last December. The institution also suggested that the completion of the ongoing transition to an interest rate-based monetary policy is key to enhancing the effectiveness of monetary policy. Tanzania’s external position last year was assessed to have been broadly in line with the level implied by fundamentals and desirable policies and the level of international reserves is assessed to be adequate by the IMF’s Assessing Reserve Adequacy (ARA) metric. The central bank, however, still maintains its less accommodative monetary policy to tame the second-round effects of global shocks according to its monetary policy committee (MPC) latest statement.